edotco's Expansion To Assist Advanced Service Development

edotco's expansion of its existing operations in Pakistan will be beneficial for the market. As a dedicated tower operator, it can provide more efficient connectivity solutions to telecoms operators that need to develop advanced premium 3G/4G services.

Axiata subsidiary edotco plans to acquire Pakistani tower operator Tanzanite Tower Private Limited for USD90mn, as part of edotco's Asian expansion strategy. The deal would add 700 towers to edotco's portfolio, which currently consists of 25,000 towers across several South and South East Asian countries. This deal would make edotco the largest dedicated telecoms infrastructure company in Pakistan and improve its traction with the country's cost-conscious mobile operators.

Growth In Mobile Voice And Data Subscriptions To Drive Market

Pakistan - Mobile & 3G/4G Subscriptions

f = BMI forecast. Source: Operators, PTA, BMI

There are broad long-term investment opportunities for edotco and other towers companies in Pakistan. There is considerable scope for organic growth in mobile and 3G/4G subscriptions and we believe these will drive growth in the short to medium term. More infrastructure will be needed, but quick returns will remain elusive for operators while they continue to bear related capital costs. Mobilink's acquisition of Warid and its infrastructure assets in Q316 shows that operators are under pressure to invest in infrastructure to remain competitive ( see 'One To Watch: Pakistan Telecoms Market', January 5 2017) but must also invest in innovative services, which an infrastructure-led business model does not always support.

By catering to the demand for infrastructure, tower companies can contribute to the market's move towards advanced services. These companies can exploit economies of scale to build and maintain passive infrastructure efficiently, thereby providing telecoms operators with connectivity solutions while freeing the latter's capital to be invested in the development of value-added services. These strategic developments conform to the global trend of operator-as-a-service and premiumisation of services.

We forecast mobile subscriptions in Pakistan to grow from 136.4mn in 2016 to 157.6mn subscriptions by 2021, a penetration rate of 74.3%. The outlook for 3G/4G subscriptions shows even more promising growth prospects: we predict over 105mn 3G/4G subscriptions in 2021, up from 37mn in 2016, an almost threefold increase over our forecast period. The emergence of independent tower operators poses upside risks to our forecasts, particularly for 3G/4G growth. However, it should be noted that other country-wide factors such as worsening business and macroeconomic conditions could deter more players from entering the market and a lack of competition poses a downside risk to our otherwise bullish outlook.